Getting to the Big Picture on Rideshare | Twin Cities Business

If we think about the stare down between Uber/Lyft and the Minneapolis City Council as a recent problem, we’re failing to grasp the economic forces and governance lapses that brought it about. If you’re too young to remember the era before Uber/Lyft or think of them merely as transportation resources for weekend partiers and airport trips, you’re missing important perspective. After a deluge of media coverage lacking such perspective, perhaps it’s valuable to start with a 10,000-foot view:

Uber debuted in the Twin Cities in 2012. (The company was formed in 2010.) Back then, the options for private transportation were taxis and pricey limos. The Twin Cities were a notoriously bad cab town.

Unlike Chicago, New York, and other large cities, you could not “hail” a cab on the street. One either had to find a “cab stand” where cabbies waited for rides (primarily in downtowns near hotels or other major sources of people without cars) or call a taxi company (there were several) and order a cab to come to you. Depending on the time of day and day of week, the wait for a cab ranged from a modest 15 minutes to hours (late at night, during bad weather, on certain holidays).

The taxi business was heavily regulated. Cab companies were licensed to cities and only could accept rides in those cities. Some had geographic constraints on where they would take you. The number of licensed cabs and their rates were regulated as well. The goal was to provide enough taxis to meet demand while limiting supply so there were enough riders to justify the number of cabs on the street. The cab business was seasonal, peaking in winter.

Cab drivers paid a daily or weekly fee to lease their vehicle from cab companies and then kept all earnings and tips. It was uncommon for drivers to own their vehicle, though the occasional owner-operator existed. Taxi drivers commonly complained the business was volatile, rates were too low, and lease costs too high to make a decent living, but most cab drivers did it as their primary job, not a sidelight for a couple hours a day. Drivers who drove at night and in the inner city also faced significant safety challenges as rides could not be vetted in advance. A primarily cash business, cabbies were often robbed at gunpoint.

Uber, like many tech companies of the era, exploited an industry deep in archaic practices that was broadly disliked by consumers in places like Minneapolis. (This was not the case New York and Chicago, where many don’t own cars, cabs were plentiful and easy to find and part of the transportation culture of the city.).

Like some tech companies of the era, Uber was funded with billions in venture capital to allow it a path to viability. And like other tech stars of the era, that glide path lasted over a decade and allowed Uber to price its service below cost and pay drivers more than it could profitably afford.

This practice is expressly forbidden under American antitrust laws, but regulators typically overlook it in early stage companies that lack monopoly power. Even though most of Uber’s formative years were under the Obama administration, its Justice Department had a blind spot for Silicon Valley’s darlings.

And to be fair, Uber built a better mousetrap. It veritably destroyed the cab business in most of America for good reason. But Uber and Lyft own no cars and provided no transportation; they are software platforms. Before the pandemic, local Uber and Lyft drivers were much more likely to be supplementing an income, the so-called gig worker. The workforce model was similar to restaurants. It was a low-barrier way to earn some extra cash on a flexible schedule. But locally, the Uber/Lyft driver cohort has evolved to one trying to derive a full-time living from a service for which that was never intended.

When the pandemic hit, Uber was still not profitable. It used the pandemic to reset its business model, adding food delivery, raising prices, and cutting driver compensation. Uber finally turned a profit last year.

It’s important to understand Uber and Lyft’s rise, because it can be argued if the government had exercised proper antitrust oversight, Uber would never have been allowed to build a monopolistic business. That Uber/Lyft were an unsustainable mirage.

What’s left of the taxi business

Fast forward to today. Uber upended the cab business in Minneapolis. My colleague Dan Niepow spoke to Blue & White Taxi earlier this month. It and Airport Taxi are the primary companies remaining in town. Blue & White told us it has 250 cabs, some company owned. But the bulk of its drivers are licensed for medical transport, not general taxi service. Medical transport is paid for by health insurers or Medicaid and involves taking often-indigent patients to appointments or tests.

KSTP reported last week that only 39 general purpose taxis are licensed in Minneapolis. They are the only option for the unbanked and their drivers endure significant safety risks in a cash business where police are difficult to summon. Blue & White’s basic rates are $2.50 per ride plus $2.50 per mile, significantly higher than Uber and even the highest rate proposed by the city council. (There is no surge pricing.) But cabbies pay several hundred dollars each week to lease their cabs, in excess of cost of ownership for rideshare drivers.

A recent pricing check from my home in south Minneapolis to the airport showed Blue & White at $40, Lyft at $39, and Uber at $30. Taxi pricing has not risen in a very long time. I remember paying $40 or more to go to the airport over a decade ago.

The idea that the city would regulate rates is not some Communistic outlier. Minneapolis and many other cities regulated cab rates for decades. Some cities had special boards designed solely to monitor and adjust rates and the number of licensed vehicles. It was not a free-market experience. (And cab drivers of yore were primarily self-employed, just like Uber drivers. The business model was just different.)

An exhaustive state study of 18,000 rideshare rides in the metro area, released earlier in March, showed drivers earn just below Minneapolis’s $15+ minimum wage—factoring in direct and indirect costs (like vehicle insurance and maintenance).

The rate debate

The question in Minneapolis is how rideshare minimums should be set. Whether rideshare drivers should be guaranteed the city minimum wage (sufficient to cover their costs of doing business according to the state) or more, and who should make that decision. The debate itself is a testament to the growing power of the region’s Somali immigrant population, who make up a large proportion of rideshare drivers. How many other self-employed professions have successfully goaded the Legislature and City Council to regulate their income?

If Uber and Lyft raise rates 40%-50% by government mandate, it will not just be weekend partiers, snowbird suburbanites, and business travelers who will pay. It will be the working poor who cannot find decent (or safe) public transport to their jobs. It will be the elderly and infirm living on fixed government assistance who cannot drive. It will be the developmentally disabled for whom taxpayers provide transport to day programs. The penchant for the leftist cohort of the DFL to oversimplify every such debate as between exploiters and the exploited is readily evident here.

And if Uber and Lyft leave, their drivers will suffer as well. The fantasy that there is another company ready to scale in Minneapolis that will accept regulated rates of the kind the City Council is mandating strains credulity. At minimum, drivers will be thrown out of work for a period of time.

The sad thing here is Uber is a textbook definition of a crappy company. Read your press clippings to learn its history and culture. But the reason we have no alternatives today is the Obama, Trump, and Biden administration’s dereliction of antitrust. Consider all the retail businesses Amazon put into bankruptcy by pricing below cost for so long. Government’s love affair with tech and its capacity to innovate at any cost, plus the Millennial and Gen-Z population’s willingness to sign on to anything with an app, whatever the social cost, are the culprits.

What’s past is past, and the question today is how Minneapolis or Minnesota propose to guarantee the wage for one subset of self-employed workers but not others. (Historically the self-employed were not guaranteed any wage. The feds are considering trying to reclassify many self-employed workers as employees to guarantee them certain benefits and protections, but this is opposed by as many subsets of the self-employed as support it.) Just as in restaurants, labor activists are trying to turn a gig business into one designed to support full-time careers and it’s fair to ask whether that’s overreach.

It’s also fair to ask whether it’s reasonable to guarantee rideshare drivers a wage guaranteed to no other class of worker in the state or city. In America, the game has always been if you don’t like your earning power, acquire some skills and boost your social class. We all can get behind the goal of everyone earning a decent living. But the portents of the rideshare pricing mess are complex and unsustainable.

It’s great that a new immigrant community has acquired the political clout as a voting bloc to get the attention of government. We should applaud that. But it’s another thing entirely to upend the American economic system for one specific class of self-employed workers, and we should think very carefully about that indeed.